Commentary and musings on the complex, fascinating and peculiar world that is securities regulation

Sunday, August 04, 2013

Senate Pension Reform Legislation Would Order Treasury-SEC Consultation on Broker and Adviser Standard of Care

Senator Orrin Hatch (R-Utah),
Ranking member on the Finance Committee, has introduced S 1270 the Secure Annuities for Employee Retirement Act, S. 1270, which addresses two critically important
aspects of retirement policy: 401(k) plan coverage and access to professional
investment advice for workers and retirees. The legislation is designed to
ensure that
retirees continue to have affordable access to professional investment advice. The
Acting Secretary of Labor is set to rewrite a 1975 regulation and dramatically
expand the ERISA fiduciary duty and prohibited transaction rules applicable to
401(k) plans. According to Senator Hatch, the Acting Secretary also intends to
apply the new and restrictive rules to IRAs, which will cause investment
advisers to stop providing advice to many IRA owners.

The IRA prohibited
transaction rules are codified solely in the Internal Revenue Code and address
transactions that involve self-dealing and conflicts of interest. Prior to the
issuance of 1978 Executive Order 12108, Treasury had jurisdiction over the IRA
prohibited transaction rules governing investment advice. The 1978 order
transferred Treasury' s jurisdiction to the DOL.

The SAFE Retirement Act restores jurisdiction for IRA
prohibited transaction rules to the Treasury Department. In addition, under the
legislation, Treasury will be required to consult with the SEC when prescribing
rules relating to the professional standard of care owed by brokers and
investment advisers to IRA owners. Specifically,
the Secretary of the Treasury must consult with the SEC in prescribing
regulations, rulings, opinions, and exemptions that provide guidance of general
application as to the professional standards of care, whether involving
fiduciary, suitability, or other standards, owed by brokers and investment
advisors to owners and account holders of accounts and annuities.

The 1978 Executive
Order also transferred to the DOL some of the Treasury Department's joint
jurisdiction over the prohibited transaction rules applicable to retirement
plans. The legislation would retore joint jurisdiction to Treasury and the DOL.
Joint jurisdiction makes sense in light of the DOL proposal to expand the 1975
regulation because Treasury must enforce prohibited transaction violations
through the assessment of excise taxes, said Senator Hatch. Treasury should
have a role to play in any expansion of the rules because expanded rules will
mean more excise tax cases for the IRS to process.